Update I: Bakrie wins Kalimantan-Java pipeline project

(Adds the sales and purchase agreements between Bakrie and prospective buyers in the seventh paragraph and the government's non-participation in finding gas for Bakrie in the ninth paragraph)

Conglomerate PT Bakrie & Brothers has won a tender to build and operate a $1.26 billion pipeline connecting gas-rich East Kalimantan province and Java.

Bakrie won the contract against bidders including PT Perusahaan Gas Negara (PGN) after it offered the lowest toll fee of 84 cents for each million British thermal unit of gas transported, Tubagus Haryono, chairman of oil and gas downstream sector regulator BPH Migas, told Petromindo by phone on Monday.

"Bakrie offered a lower toll fee because its proposed route passes through less densely populated areas, making it cheaper to buy land," Tubagus said. The 1,115 kilometer pipeline runs under sea for 595 kilometer and is scheduled for completion in July 2009, he said.

Bakrie, which is linked to Coordinating Minister of Public's Welfare Aburizal Bakrie, is involved in various businesses, including plantation, telecommunication and steel manufacturers. Its steel manufacturing arm is among the firms that supply pipes for the ongoing pipeline project owned by PGN that will deliver gas from Sumatra to Java.

The government is promoting the use of natural gas to cut consumption of oil products after crude prices tripled in the last three years. A lack of pipelines has hampered the use of gas in Java, the country's most populous island where most industry is located.

It has announced that it would not extend contracts to supply 12 million metric tons of liquified natural gas (LNG) per year to Japan after the existing contracts expire around 2010. The LNG comes mostly from the LNG plant in Bontang, East Kalimantan.

According to Tubagus, Bakrie has signed memorandums of understanding (MOU) with three companies to buy gas that will be delivered through the pipeline. Under the MoUs, Bakrie will supply a total of 800 million cubic feet per day (MMCFD) of gas to the three firms, including 300 MMCFD to electricity firm PT Indonesia Power, 400 MMCFD to gas distributor PT Persada Karya Dwiguna and 100 MMCFD to gas distributor PT Rabana Gasindo Makmur.

The completion of the pipeline will depend on the winning bidder's negotiations with gas producers in East Kalimantan such as Total SA, Chevron Corp., and Vico Indonesia, a joint venture of BP Plc and Eni SpA, to secure gas supply for the pipeline, Tubagus said.

He said that the government would not get involved in Bakrie's deal with the gas producers. ?As the exclusive rights holder, the company should find the gas producer(s) by itself,? Tubagus added (Godang)